You would be justified picking the Great White Shark. All those teeth. The Jaws movies. The National Geographic footage of a seal getting devoured.

But the Great White is not the baddest of them all. That would be the killer whale, aka Orca. We just don’t think of the Orca that way because it has such a friendly appearance. Shamu at Sea World wouldn’t hurt anyone, right?

The Great White knows the score. Scuba divers in shark-infested waters (off the coast of South Africa for example) are known to carry black-and-white paddles that resemble killer whale markings at a distance. If a shark starts swimming too close, the diver will flash the paddle — and the shark will instinctively turn tail and book it (for fear of becoming lunch).

This is analagous to what can happen in poker and trading, as the following tale will attest…

An Epic Cash Game

Two weekends ago, yours truly (JS) played in one of the most epic $5-$10 No Limit cash game sessions in history. (To be accurate, this game only played like a $5-$10 forty percent of the time. The other sixty percent of the time, it was more like $25-$50 / $100 to go.)

There were multiple sharks at the table, one or two grinders, and two full-on whales. We’ll call them Whale One and Whale Two. By the time the smoke cleared in the wee hours of the morning, Whale One had taken a solid $15,000 from the various sharks… but then turned around and given $40,000 to Whale Two.

The action was non-stop, with $4,000 pots every 20 minutes or so…. routine button straddles of $100 preflop… and multiple pots in the 10 to 20K range. The biggest pot of the night — $35,000 by the river — went like this:

Whale One has J-3

Whale Two has J-9

Doomed shark has 9-9 (pocket nines)

Flop comes J-9-3

The turn is a J, for J-9-3-J (river is a blank)

Three full houses, raising and reraising galore…

Whale Two takes down 35k with jacks full of nines.

Whale One, felted and steaming, reloads for $20,000…

Whale Classification

In the Mercenary poker lexicon, there is a type of player known as a Degen Whale, or “D-Whale” for short.

D-Whales have three general characteristics:

They are successful businessmen.

The money (and the swings) mean very little to them.

They play for fun rather than profit.

In the case of this particular cash game, Whale Two owned a software company. Whale One led a real estate investment group. Both these men are the epitome of caution, rigor, and strategic management in their respective businesses. They are very good (and very professional) at what they do.

The game of poker for these guys — as it is for most D-Whales — is an opportunity to get crazy, blow off steam, and have a great time taking ballsy risks for the hell of it. A D-Whale might get hot and win $20,000 in a high stakes poker outing, or he might run cold (or just neutral) and lose $20,000. Either way, it’s not going to impact his lifestyle much, or even his mood come Monday.

The “sharks” in question — typically younger players on a financial shoestring, trying to beat the game with skill — are almost uniformly 1) far smaller-stacked than the D-whales, and 2) rightfully afraid of them, just as real sharks fear Orcas.

In the poker ocean, the natural food source for the shark is squid, seal, and various fish of small to medium size. (Sharks also vary in size and stature themselves.) D-Whales are a much more dangerous prospect.

Tonic Immobility

You might wonder why D-whales, e.g. wealthy businessmen with no heavy skill investment in poker, would want to sit down and play with sharks at all, even for entertainment. It is because the D-whale knows something powerful: If he can get the shark flipped over on his back, that shark is toast.

In the ocean, Orcas have developed sophisticated means of hunting Great Whites. The Orca’s goal is to make a meal of the Great White without getting hurt in a confrontation. (Larger predators have to guard against life-complicating wounds inflicted by a prey animal fighting for its life. This is why bears don’t mess with badgers.)

By a quirk of biology, if a shark is flipped on its back, i.e. rotated upside down, it goes into a trance-like state and cannot move or defend itself. This is known as “tonic immobility.” The shark can literally drown in this state, for lack of oxygenated water passing through its gills. (If a shark stops swimming forward, it dies. Hence Woody Allen’s charecterization of a stalled relationship as a “dead shark.”)

Marine biologists don’t fully understand the tonic immobility phenomenon (why upside-down sharks trance out). But Orcas intuitively know how to exploit it. The Orca’s tactics include forcing the Great White up toward the surface of the water, then using its tail like a giant spatula to flip or roll the shark onto its back. Once that happens — dinner time!

In similar fashion, at the poker table, a D-Whale can “roll” a shark through deception and pure volatility dominance.

For example, if a medium-sized shark bets $300 preflop with AK and the D-whale calls with 6-7, and the flop comes K-7-7, guess who’s going to get rolled? Or maybe the D-whale called with a hand that whiffed… but the shark has to fear the possibility of trips on a K-7-7 board, knowing 6-7 is within the D-Whale’s range… and so when the $1,500 flop bet comes, the shark has to fold or brave the risk of getting eaten.

In poker, D-whale vs shark engagement is a function of stack size, brute force aggression, and willingness / capability to endure swings. The D-Whale can take huge downswings (created by actions like calling big raises preflop with 6-7), yet compensatingly eat his lesser-capitalized opponents in one or two bites. That means the shark can win six confrontations out of seven, lose the seventh, and give up all his chips.

The D-whale eventually loses money in the end — you can only make so many bad calls before EV (expected value) calls you out — but he has a great time doing so, which is the point, and makes a meal of many a shark along the way.

Neither Shark Nor Whale…

So where does the Mercenary fit in the poker ocean? As in trading, labels are hard to apply. The versatile practitioner does not fit neatly into a box. The answer is not “shark,” because the typical shark is under-capitalized relative to the stakes they play… and much of the time sharks are not all that smart. (Or at least, not nearly as smart as they think they are…)

But nor is the answer “whale,” in the D-Whale sense, because the Mercenary 1) keeps a handle on volatility through skillful risk management, and 2) plays for profit rather than entertainment (though winning is quite entertaining at the end of the day).

Apex Predators

In the actual ocean, killer whales are known as “apex predators” because they fear no other animal. The Wikipedia description of “apex predator” is interesting:

Apex predators (also known as alpha, super, top or top-level predators) are predators with no predators of their own, residing at the top of their food chain. Zoologists define predation as the killing and consumption of another organism (which generally excludes parasites and most bacteria). In this context, “apex predator” is usually defined in terms of trophic dynamics. Apex predator species occupy the highest trophic level(s) and have a crucial role in maintaining the health of their ecosystems. One study of marine food webs defined apex predators as greater than trophic level four. The apex predator concept is commonly applied in wildlife management, conservation, and ecotourism.

Food chains are often far shorter on land, with the top of the food chain limited to the third trophic level, as where such predators as the big cats, crocodilians, hyenas, wolves, or giant constrictor snakes who prey upon large herbivores. Apex predators do not need to be hypercarnivores. For example, grizzly bears and humans are each apex predators and are omnivores.

In a high stakes cash game, the apex predator would be a player who combines the deep capitalization of a D-Whale with the skill and nuance of an alpha-shark.

Essentially, capitalization matters and absolute skill level matters at separate ends of the spectrum. An abundance of one can compensate for a shortage of the other — but only up to a point. If you have superior levels of capitalization and skill — the ultimate apex predator combo — your opponents are basically fish food.

There will always be guys with more money in play, of course. If you are worth $10 million, and you play high enough, you will run into some guy worth $100 million, and so on. But there are no solo factors, only combined factors. We can thus further define “apex predator” not as the player with the biggest capitalization or the greatest skill (because skill can be hobbled when short stacked), but rather as the player with the most potent combination of capitalization and skill, for max compounding effect.

In a 5-10 no limit cash game, then, the player to fear most is not the hyperactive D-Whale with the $20,000 stack (though he must be handled carefully)… or the “seasoned internet pro” short-stacked at $1,500… but rather the guy with the formidable stack (5k+) who has zero fear, inexhaustible patience, and a strong reservoir of talent.

Trading Takeaway: Capitalization Matters

How can we take this back to trading? One primary lesson from observations of the poker ecosystem is that capitalization matters.

Capitalization means mental fortitude alongside fiscal fortitude. As such, capitalization extends beyond what you have on the table (or in the market). It encompasses your free cash flow, and what you have in the bank (or in the mattress), relative to coolness of mental state.

Capitalization (ample funds in reserve) allows you to put pressure on opponents… withstand pressure put upon you… go for extended stretches without a payday… and make enough profit overall, in absolute dollar terms, to justify the opportunity cost of time and energy investment.

These ideas matter in trading too. In this arena short-term traders can learn from medium-term traders and longer-term investors.

A successful investor will not be put out of business by a quarterly drawdown, or even the relatively infrequent annual drawdown (if such is within reason). He (or she) is not living so hand-to-mouth as to demand a weekly or even monthly paycheck from markets, instead understanding that the distrbution of lump sum payouts will be more erratic.

As with certain business models, the ability to handle uneven profit cycles is a form of robustness. (This concept applies in poker too. While a strong cash game player can expect to have winning sessions 60 to 70% of the time, the ability to do the occasional make-up stretch in drawdown purgatory — after, say, taking a tag from a D-whale — is critical.)

Would-be traders, for some reason — perhaps because it’s easier — often tend to overlook hard capitalization realities. They approach markets in the hopes of getting a weekly or monthly paycheck — not realizing this level of dependence on steady payouts is a form of time fragility, and thus a significant weakness. In addition, they ramp up their expected return-on-investment demands too quickly relative to a skimpy capital base — trying to make a too-small stake do the work of what should be a larger one, even as their psyche is made vulnerable.

Building a Trading Stake From Scratch…

This line of discussion leads to a serious problem many aspiring traders (and poker players) face. Having an adequate trading stake solves a lot of problems (assuming the skill component is also addressed). But how do you get to that point? How do you build up that trading stake?

It’s the old catch-22:

Poker and trading both “take money to make money.”

Without a certain amount of money (capitalization)…

You find yourself poorly armored and outgunned.

So how do you get where you need to be?

How do you obtain a stake of adequate size…

Or even conceptualize the process of doing so?

As of this writing we have a special report in the works, “How to Build a Trading Stake From Scratch,” that addresses the step-by-step details and specifics of this question.

It fills in the blanks as to how you can go from being a guppy to a marlin to an apex predator yourself… or at least illuminates the path by which such a journey becomes possible.